Past Overuse of Intensive Care Services Inflates Hospital Payments

HRD-86-25: Published: Mar 7, 1986. Publicly Released: Mar 7, 1986.

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GAO analyzed the changes in intensive care units (ICU) since the implementation of the Medicare prospective payment system (PPS) in order to: (1) estimate the extent to which, prior to PPS, Medicare patients received ICU services when less costly routine care would have been a feasible option; (2) determine whether hospital practices regarding the use of ICU services changed after PPS implementation; and (3) ensure that changes in such utilization are reflected in Medicare payment rates.

GAO found that 23 percent of the Medicare ICU patients reviewed were at low risk of needing a treatment provided in an ICU and did not receive such treatment during their ICU stay. In 21 diagnosis-related groups, an average 1.1 percent of costs of care reflected the extra expense of treating low-risk patients in ICU, or an increase of about $3.2 million in the Medicare cost base. GAO noted that situations affecting medical practices that contributed to avoidable ICU admission and changing hospital practices and attitudes indicated that PPS was meeting a major objective of encouraging hospitals to operate more efficiently. Hospital officials attributed improvements to physician awareness and the fact that they were responding to anticipated pressures for improved efficiency under PPS. Medicare requires that PPS rates reflect the costs necessary for the efficient and effective delivery of medically appropriate and necessary care of high quality; however, the data used to set the rates include the costs of unnecessary services. The costs, therefore, of providing appropriate medical services economically and efficiently are overstated. As long as the database remains inflated, Medicare's PPS rates will remain high.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The Department of Health and Human Services (HHS) has not rebased prospective payment rates. The Prospective Payment Assessment Commission has recommended reductions in rates in 1987, 1988, and 1989, based on its analysis of hospital cost data. The Commission again recommended rebasing in 1990. The hospital industry has also recently supported rebasing.

    Recommendation: The Secretary of Health and Human Services should revise prospective payment rates to base them on 1984 or later cost data, which reflect hospital behavior under PPS.

    Agency Affected: Department of Health and Human Services


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